Professional Documents
Culture Documents
Learning Objectives
records, and
communicates
1-2 LO 1
Three Activities
Illustration 1-1
The activities of the accounting
process
1-3 LO 1
Who Uses Accounting Data
INTERNAL
USERS
Illustration 1-2
Questions that internal
users ask
1-4 LO 1
1-5 LO 1
Who Uses Accounting Data
EXTERNAL
USERS
Illustration 1-3
Questions that external
users ask
1-6 LO 1
DO IT! 1 Basic Concepts
1-7 LO 1
LEARNING Explain the building blocks of accounting:
2
OBJECTIVE ethics, principles, and assumptions.
1-8 LO 2
Ethics in Financial Reporting
Illustration 1-4
Steps in analyzing ethics
cases and situations
1-9 LO 2
Ethics in Financial Reporting
Question
Ethics are the standards of conduct by which one's
actions are judged as:
a. right or wrong.
b. honest or dishonest.
1-10 LO 2
1-11 LO 2
Generally Accepted Accounting Principles
Financial Statements
Various users Balance Sheet
need Income Statement
Statement of Owner's Equity
financial Statement of Cash Flows
information Note Disclosure
1-12 LO 2
Generally Accepted Accounting Principles
Standard-setting bodies:
► Financial Accounting Standards
Board (FASB)
► Securities and Exchange
Commission (SEC)
► International Accounting Standards
Board (IASB)
1-13 LO 2
Measurement Principles
1-14 LO 2
Assumptions
Proprietorship
Forms of Business
Partnership
Ownership
Corporation
1-15 LO 2
Forms of Business Ownership
1-16 LO 2
Assumptions
Question
Combining the activities of Kellogg and General
Mills would violate the
a. cost principle.
d. ethics principle.
1-17 LO 2
Assumptions
Question
A business organized as a separate legal entity under state
law having ownership divided into shares of stock is a
a. proprietorship.
b. partnership.
c. corporation.
d. sole proprietorship.
1-18 LO 2
DO IT! 2 Building Blocks of Accounting
1-20 LO 2
LEARNING State the accounting equation, and define
3
OBJECTIVE its components.
1-21 LO 2
Basic Accounting Equation
Assets
Resources a business owns.
Provide future services or benefits.
Cash, Supplies, Equipment, etc.
1-22 LO 2
Basic Accounting Equation
Liabilities
Claims against assets (debts and obligations).
Creditors (party to whom money is owed).
Accounts Payable, Notes Payable, Salaries and Wages
Payable, etc.
1-23 LO 2
Basic Accounting Equation
Owner's Equity
Ownership claim on total assets.
Referred to as residual equity.
Investment by owners and revenues (+)
Drawings and expenses (-).
1-24 LO 2
Owner’s Equity Illustration 1-6
Expanded accounting
equation
1-25 LO 2
Owner’s Equity Illustration 1-6
Expanded accounting
equation
1-26 LO 2
DO IT! 3 Owner's Equity Effects
Classification
Expense Decrease
Effect on Equity
3. Drawings
Expense Decrease
4. Salaries and Wages
1-27 LO 2
Expense
LEARNING Analyze the effects of business transactions
4
OBJECTIVE on the accounting equation.
1-28 LO 2
Transaction Analysis
Record/
Don’t Record
1-29 LO 2
Transaction Analysis
Illustration
+1 1-8
Tabular summary of
5,0
Softbyte transactions
00
1-30 LO 2
TRANSACTION 2. PURCHASE OF EQUIPMENT FOR CASH Softbyte
Inc. purchases computer equipment for $7,000 cash.
Illustration 1-8
1-31 LO 2
TRANSACTION 3. PURCHASE OF SUPPLIES ON CREDIT Softbyte Inc.
purchases for $1,600 headsets and other accessories expected to last
several months. The supplier allows Softbyte to pay this bill in October.
Illustration 1-8 Assets = Liabilities + Owner's Equity
Trans- Accounts Accounts Owner's Owner's
Cash + Receivable + Supplies + Equipment =
Payable
+
Capital
+
Drawings
+ Rev. - Exp.
action
+15,000
1.
-7,000 +7,000
+1 +1,600 +1,600
5,0
4. +1,200 +1,200
00
5. +250 -250
2.
6. +1,500 +2,000 +3,500
3.
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -
1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-32 LO 2
TRANSACTION 4. SERVICES PERFORMED FOR CASH Softbyte Inc.
receives $1,200 cash from customers for app development services it has
performed. Illustration 1-8
1-33 LO 2
TRANSACTION 5. PURCHASE OF ADVERTISING ON CREDIT Softbyte
Inc. receives a bill for $250 from the Daily News for advertising on its online
website but postpones payment until a later date. Illustration 1-8
1-35 LO 2
TRANSACTION 7. PAYMENT OF EXPENSES Softbyte Inc. pays the
following expenses in cash for September: office rent $600, salaries and
wages of employees $900, and utilities $200. Illustration 1-8
1-36 LO 2
TRANSACTION 8. PAYMENT OF ACCOUNTS PAYABLE Softbyte Inc.
pays its $250 Daily News bill in cash. The company previously (in
Transaction 5) recorded the bill as an increase in Accounts Payable.
Illustration 1-8 Assets = Liabilities + Owner's Equity
Trans- Accounts Accounts Owner's Owner's
Cash + Receivable + Supplies + Equipment =
Payable
+
Capital
+
Drawings
+ Rev. - Exp.
action
+15,000
1.
-7,000 +7,000
+1 +1,600 +1,600
5,0 +1,200 +1,200
00
+250 -250
2.
+1,500 +2,000 +3,500
3.
-1,700 -600
4.
-900
5. -200
6.
8. -250 -250
7.
9. +600 -600
10. -1,300 -
1,300
1-40 LO 4
DO IT! 4 Tabular Analysis
Transactions made by Virmari & Co., a public accounting firm, for the
month of August are shown below. Prepare a tabular analysis which
shows the effects of these transactions on the expanded accounting
equation, similar to that shown in Illustration 1-8.
1. The owner invested $25,000 cash in the business.
2. The company purchased $7,000 of office equipment on credit.
3. The company received $8,000 cash in exchange for
services performed.
4. The company paid $850 for this month’s rent.
5. The owner withdrew $1,000 cash for personal use.
1-41 LO 4
DO IT! 4 Tabular Analysis
2. +7,000 +7,000
3. +8,000 +8,000
4. -850 -850
5. -1,000 -1,000
$18,050 $18,050
1-42 LO 4
DO IT! 4 Tabular Analysis
2. +7,000 +7,000
3. +8,000 +8,000
4. -850 -850
5. -1,000 -1,000
$18,050 $18,050
1-43 LO 4
DO IT! 4 Tabular Analysis
3. +8,000 +8,000
4. -850 -850
5. -1,000 -1,000
$18,050 $18,050
1-44 LO 4
DO IT! 4 Tabular Analysis
2. +7,000 +7,000
3. +8,000 +8,000
4. -850 -850
5. -1,000 -1,000
$18,050 $18,050
1-45 LO 4
DO IT! 4 Tabular Analysis
2. +7,000 +7,000
3. +8,000 +8,000
4. -850 -850
5. -1,000 -1,000
$38,150 $38,150
1-46 LO 4
LEARNING Describe the four financial statements
5
OBJECTIVE and how they are prepared.
Owner’s Statement
Income Balance
Equity of Cash
Statement Sheet
Statement Flows
1-47 LO 5
Financial Statements
Question
Net income will result during a time period when:
1-48 LO 5
Net income is needed to determine the
Financial Statements ending balance in owner’s equity.
SOFTBYTE
Income Statement
For the Month Ended September 30, 2017
Illustration 1-9
Financial statements and
their interrelationships
SOFTBYTE
Owner’s Equity Statement
For the Month Ended September 30, 2017
1-49 LO 5
SOFTBYTE
Owner’s Equity Statement
For the Month Ended September 30, 2017
Illustration 1-
The ending 9
balance in SOFTBYTE
owner’s equity Balance Sheet
is needed in September 30, 2017
preparing the
balance sheet.
Illustration 1-9
Financial statements
and their
interrelationships
1-50
SOFTBYTE
Financial Balance Sheet
September 30, 2017
Statements
Illustration 1-9
Financial statements
and their
interrelationships
1-51
Income Statement
1-52 LO 5
Owner’s Equity Statement
1-53 LO 5
Balance Sheet
1-54 LO 5
Statement of Cash Flows
1-55 LO 5
Financial Statements
Question
Which of the following financial statements is prepared
as of a specific date?
a. Balance sheet.
b. Income statement.
1-56 LO 5
1-57 LO 5
DO IT! 5 Financial Statement Items
1-58 LO 5
DO IT! 5 Financial Statement Items
1-59 LO 5
DO IT! 5 Financial Statement Items
1-60 LO 5
DO IT! 5 Financial Statement Items
1-61 LO 5
LEARNING APPENDIX 1A: Explain the career
6
OBJECTIVE opportunities in accounting.
1-62 LO 5
“Show Me the Money”
1-63 LO 5
LEARNING Describe the impact of international accounting
OBJECTIVE
7 standards on U.S. financial reporting.
Key Points
Following are the key similarities and differences between GAAP and
IFRS as related to accounting fundamentals.
Similarities
The basic techniques for recording business transactions are the
same for U.S. and international companies.
Both international and U.S. accounting standards emphasize
transparency in financial reporting. Both sets of standards are
primarily driven by meeting the needs of investors and creditors.
1-64 LO 5
Key Points
Similarities
The three most common forms of business organizations,
proprietorships, partnerships, and corporations, are also found in
countries that use international accounting standards.
Differences
International standards are referred to as International Financial
Reporting Standards (IFRS), developed by the International
Accounting Standards Board. Accounting standards in the United
States are referred to as generally accepted accounting principles
(GAAP) and are developed by the Financial Accounting
Standards Board.
1-65 LO 7
Key Points
Differences
IFRS tends to be simpler in its accounting and disclosure
requirements; some people say it is more “principles-based.”
GAAP is more detailed; some people say it is more “rules-based.”
The internal control standards applicable to Sarbanes-Oxley
(SOX) apply only to large public companies listed on U.S.
exchanges. There is continuing debate as to whether non-U.S.
companies should have to comply with this extra layer of
regulation.
1-66 LO 7
Looking to the Future
Both the IASB and the FASB are hard at work developing standards that
will lead to the elimination of major differences in the way certain
transactions are accounted for and reported.
1-67 LO 7
IFRS Self-Test Questions
Which of the following is not a reason why a single set of high-quality
international accounting standards would be beneficial?
b) Financial markets.
c) Multinational corporations.
1-68 LO 7
IFRS Self-Test Questions
The Sarbanes-Oxley Act determines:
1-69 LO 7
IFRS Self-Test Questions
IFRS is considered to be more:
1-70 LO 7
Copyright
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1-71